PO V Interview Materials

Goods and Services Tax

Goods and Services Tax (GST) refers to the single unified tax created by amalgamating a large number of
Central and State taxes presently applicable in India. The latest constitution Amendment Bill of December 2014
made in this regard. As per that, GST means any tax on supply of goods, or services, or both, except taxes on
supply of the alcoholic liquor for human consumption. And here, services are defined to mean anything other
than goods.
Implementation of GST is one of the major indirect tax reforms in India and is expected to be put in place by
April 2016.
Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution of
India with almost no overlap between the respective domains.
The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human
consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods.
In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is
collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy
service tax.
Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their
importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs.
This duty counterbalances excise duties, sales tax, State value added tax (VAT) and other taxes levied on the
like domestic product. Introduction of the GST would require amendments in the Constitution so as to
concurrently empower the Centre and the States to levy and collect the GST.

Advantages of GST
The Good and Services Tax (GST) qualifies for these four canons in a better manner. By amalgamating various
taxes into a single tax, GST would mitigate cascading or double taxation (tax upon tax situations) in a major way
and pave the way for a common national market.
If the benefits are passed on fully, for consumers, this would mean 25%-30% reduction in the prices they pay,
as tax burden on goods comes down. This can reduce the overall costs of production and hence, introduction of
GST would also make Indian products more competitive in the domestic and international markets, with
beneficial effects on economic growth.
According to the implementing agency, Central Board of Excise and Customs (CBEC), this tax, because of its
transparent character, would be easier to administer. Union Budget 2014-15 admitted that GST will streamline
the tax administration, avoid harassment of the business and result in higher revenue collection, both for the
Centre and the States.
GST also helps in better tax collections, better tax compliance, less cases of tax evasion and litigation, more
transparency, less harassment and corruption, according to Union Finance Minister, Shri Arun Jaitly.
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GST would replace the following taxes currently levied and collected by the Centre:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Central Excise duty

Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act 1955,
Additional Excise Duties (Goods of Special Importance)
Additional Excise Duties (Textiles and Textile Products)
Additional Customs Duty (commonly known as Countervailing duties or CVD)
Special Additional Duty of Customs (SAD)
Service Tax
Cesses and surcharges in so far as they relate to the supply of goods and services
Taxes on the sale or purchase of newspapers and on advertisements published therein.

State taxes that would be subsumed within the GST are:

1.
2.
3.
4.
5.
6.

State VAT/ Sales Tax

Central Sales Tax (levied by the Center and collected by the States)
Luxury Tax
Octroi - a local tax levied on certain articles, such as foodstuffs, on their entry into a city/district.
Purchase Tax
Entertainment Tax which are not levied by the local bodies; i.e. panchayats, municipalities and District
councils of autonomous districts can impose taxes on entertainment and amusements
7. Taxes on general advertisements
8. Taxes on lotteries, betting and gambling
9. State cesses and surcharges insofar as they relate to supply of goods or services
GST does not subsume stamp duties and custom duties.

The salient features of GST are as under:

i.

ii.
iii.
iv.

v.
vi.

vii.

GST comes under the broad spectrum of what is known as Value Added Tax which provides for input
credits and taxes only the value addition that happened in the process of production / provision of
service.
GST would be applicable on supply of goods or services as against the present concept of tax on the
manufacture or on sale of goods or on provision of services.
GST would be a destination based tax as against the present concept of origin based tax. i.e, tax is
imposed at the point of consumption.
The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply
of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds
of IGST will be apportioned among the States.
CGST and SGST would be levied at rates to be mutually agreed upon by the Centre and the States.
Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST
paid on inputs may be used only for paying SGST. In other words, the two streams of input tax credit
cannot be mixed except in specified circumstances of inter-State sales.
Tobacco and tobacco products would be subject to GST. In addition, the Centre could continue to levy
Central Excise duty and the States can levy sales tax / VAT.
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PO V Interview Materials
viii.
ix.

Exports would be zero-rated.

Import of goods or services would be treated as inter-State supplies and therefore, would be subject to
IGST in addition to the applicable customs duties.
The list of exempted goods and services is attempted to be kept to a minimum and it would be
harmonized for the Centre and the States as far as possible.

x.

The Chief Economic Advisor Arvind Subramanian led panel on 4 December 2015 submitted its report on Possible
Tax rates under Goods and Services Tax (GST) to Finance Minister Arun Jaitley.
The commission recommended standard rate for GST at 17 to 18 percent, the rate at which most products would
likely be taxed. The Committee has suggested doing away with a proposal to levy a one percent inter-state tax
on transfer of good.
The committee excluded real estate, electricity and alcohol and petroleum products while calculating tax rates
but has suggested bringing them under the ambit of GST soon.

Highlights of Recommendations

It recommended a range of 12 to 40 percent for various products and services.

Revenue Neutral Rate (RNR) proposed at 15-15.5% (Union and states combined).
Include petroleum and alcohol in GST regime.
Impact on inflation expected to be minimal.

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